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Page 1: Export Restrictions in Raw Materials Trade: facts, fallacies and better ...

UNCTAD GLOBAL COMMODITIES FORUM 13-14 April 2015

Export Restrictions in Raw Materials Trade: Facts, fallacies and better practices

By

Ms. Jane Korinek

OECD

The views expressed are those of the author and do not necessarily reflect the views of UNCTAD.

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UNCTAD Global Commodities Forum

April 13-14, 2015

Jane Korinek, OECD

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Measures export tax

export quota

export prohibition

export licensing requirement

restriction on customs clearance point for exports

Policy objectives → generate fiscal revenue

→ conserve natural resources

→ control illegal exports

→ protect health/environment

→ safeguard domestic supply

→ promote processing industry

What are the objectives of export restrictions?

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Trade policy is rarely an optimal instrument to address a domestic market objectives. It is untargeted and has negative side effects.

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Use of export restrictions on metals and minerals is increasing

OECD Trade and Agriculture Directorate 3

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Export taxes can be substantial Ad valorem % taxes on steel and major steel raw materials

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A few of the economic impacts

• Other raw materials exporters will find heightened demand

• “Bandwagon” effect

• Potential for policy response from importing countries

• Drop in global welfare can be substantial

OECD Trade and Agriculture Directorate 5

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Simultaneous removal of export restrictions on steel-making raw materials

• Results show that downstream industries benefit

from removal of export tax – even in countries that

have export tax raw materials !

• Why?

– increased supply of raw materials to world markets

– drop in global prices

– more choice in sourcing for downstream industries at

lower price

OECD Trade and Agriculture Directorate 6

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New study by NW University in South Africa

• Export taxes on:

Manganese in Gabon

Aluminium in Guinea

Copper in Zambia

• Export tax followed by ban on:

Chromium ore in Zimbabwe

• Export license on:

Lead in South Africa

OECD Trade and Agriculture Directorate 7

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Impacts on semi-processed products in five African countries

…. “the comparative advantage between input (i.e. mineral ores) and semi-processing in the African case studies is very limited...”

“In the absence of statistical correlations the case for export restrictions as a tool for fostering processing is weak under the best circumstances.”

OECD Trade and Agriculture Directorate 8

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Objectives better served through other policies

• OECD case studies on management and regulation of extractives

• Chile, Botswana, Colombia, Peru

• Tax design and distribution of tax revenue from extractives

• Spillovers into adjacent sectors

• Illegal mining

OECD Trade and Agriculture Directorate 9

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Lessons from minerals exporters that have successfully leveraged their resources

• Transparent regulatory framework that applies to all firms

– As opposed to holding individual negotiations between large MNEs and government officials in countries with relatively less capacity

– Asymmetric information

– Potential for rent-seeking

OECD Trade and Agriculture Directorate 10

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Lessons (2)

• Some countries use export restrictions to generate employment in processing industries. – But already over-capacity in global processing

– Energy and water demands can strain domestic resources.

• Develop industries & services around mining instead of downstream – Chile, Australia, Norway

OECD Trade and Agriculture Directorate 11

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Sorting

&

Valuing

Jewellery

Manufacturing Polished

Trading

Cutting &

Polishing Mining &

Recovery Prospecting Aggregation

Retail

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OECD work on-going in this area: Data platform

• Database continuously updated

• Expansion to include a wide range of information on minerals and metals: production, reserves, import and export restrictions, trade flows ++

• Further analysis on economic impacts

OECD Trade and Agriculture Directorate 13

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OECD work on-going in this area: policy dialogue

• Conference in November 2014

• Looking to push the ball forward on questions of trade in raw materials

• Wider than export restrictions: import restrictions, subsidies, LCRs, certification, leveraging the supply chain, security of supply chains.

• Here again, we are looking for partners

OECD Trade and Agriculture Directorate 14

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[email protected]

http://oecd.org/tad/benefitlib/export-restrictions-raw-materials.htm

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AMIS is tackling the key issues

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• Market Monitor

• Improved data on S&D Balances, stocks, forecasts

Transparency

• Training and technical workshops on methods

• Rapid Response Forum - early action to prevent crises

International Policy Co-ordination

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Lessons from Chile: taxation

• Transparent, predictable, balanced and within an acceptable range

• Mining tax is progressive

• Profits rather than production are taxed

• Mining received 38% of FDI entering the country while contributing 28% of all tax revenue.

OECD Trade and Agriculture Directorate 17

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Lessons from Chile: tax revenue management Chile’s sovereign spread since the structural balance

policy basis points

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Lessons from Chile: spillovers to the wider economy

• Chile has been introducing a strategy of supporting sectors that service mining operations

• Some PPPs that develop local providers into world-class suppliers

• Need for high-quality professionals is a known bottleneck in the mining industry

OECD Trade and Agriculture Directorate 19

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Botswana

• went from being one of the poorest countries to upper-middle income

• Stable tax environment

• Careful, step-by-step implementation of profit-sharing policies in the context of joint venture (Debswana)

• Asset depletion => expenditure on assets, human and physical

OECD Trade and Agriculture Directorate 20

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Takeaways (2)

• Priorities for spending the revenue from taxation of minerals: One of the cornerstones of Botswana’s development policy has been to invest the entirety of the revenue extracted from its mineral asset in physical and human assets, i.e., education, health and infrastructure.

• Good quality, detailed geological information is of prime importance to attract investment.

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Takeaways (3)

• Regulatory stability is of prime importance

• Good fiscal rules that advocate spending minerals tax revenues in a counter-cyclical fashion help contain exchange rate volatility.

OECD Trade and Agriculture Directorate 22